1 Dec 2014
Short AUD/CAD – Morgan Stanley
FXStreet (Barcelona) - Analysts at Morgan Stanley believe that AUD/CAD will weaken on Asia-US economic divergence, and hence have a bearish outlook on the pair.
Key Quotes
“We believe that AUDCAD will weaken on Asia-US economic divergence. China’s rebalancing away from exports and investment towards domestic consumption will continue to challenge Australia’s growth model. Due to bond inflows, AUD has yet to adjust to lower terms of trade. Ultimately, the decline in local income in AUD terms will weigh on the domestic economy in 2015."
“Meanwhile, Canadian export data suggest that the country is finally benefitting from US growth, particularly excommodities.”
“Prior CAD weakness is offsetting concerns about Canada’s competitiveness in manufacturing. Moreover, Canada is now the only G10 country with inflation above the central bank’s target midpoint.”
“Canada sends few exports to growth-challenged Europe and Asia, with 77% of its exports going to the US, and its export composition is more diverse than most think (only 24% energy). Therefore, CAD provides some diversification from the long USD trade, where positioning is more crowded, domestic inflation lower and Fed policy an unpredictable driver.”
“Also notable are the respective central banks’ different approaches to FX. The RBA still argues that AUD is overvalued, given declines in commodity prices.”
“Meanwhile, the BoC has distanced itself from active exchange rate policy. The BoC is primarily interested in USDCAD, which we see rising slightly to 1.17 by 4Q15.”
Key Quotes
“We believe that AUDCAD will weaken on Asia-US economic divergence. China’s rebalancing away from exports and investment towards domestic consumption will continue to challenge Australia’s growth model. Due to bond inflows, AUD has yet to adjust to lower terms of trade. Ultimately, the decline in local income in AUD terms will weigh on the domestic economy in 2015."
“Meanwhile, Canadian export data suggest that the country is finally benefitting from US growth, particularly excommodities.”
“Prior CAD weakness is offsetting concerns about Canada’s competitiveness in manufacturing. Moreover, Canada is now the only G10 country with inflation above the central bank’s target midpoint.”
“Canada sends few exports to growth-challenged Europe and Asia, with 77% of its exports going to the US, and its export composition is more diverse than most think (only 24% energy). Therefore, CAD provides some diversification from the long USD trade, where positioning is more crowded, domestic inflation lower and Fed policy an unpredictable driver.”
“Also notable are the respective central banks’ different approaches to FX. The RBA still argues that AUD is overvalued, given declines in commodity prices.”
“Meanwhile, the BoC has distanced itself from active exchange rate policy. The BoC is primarily interested in USDCAD, which we see rising slightly to 1.17 by 4Q15.”